Notable IPOs And Secondaries

Includes: LRN
by: Brent Adamson

Digging through filings is where most successful investors can gain an edge. Paying close attention to the actions and words of management, smart insiders and the private equity sponsors oftentimes makes the difference between a multi-bagger and a zero. Here's some of the important points we found in recent S-1 filings for K12, Inc (LRN), Restoration Hardware, and Roundy's:

1. K12, Inc.
K12, Inc. investors could have saved themselves a pantload last week by reading the tea leaves and bailing before the now infamous New York Times Article hit the wires. Technology Crossover Ventures ("TCV") filed to sell the 4 million shares they own in K12, Inc., a technology-based education company last week. Just a few, short months ago (April, 2011) TCV bought those 4 million shares for $31.46, for a total investment of $125.8 million. K12, in turn, used those proceeds to help fund growth and acquisitions. When TCV filed the S-1, K12 was trading at $28. Assuming they sold at that price, TCV's loss would have been over $11 million. While not a huge loss for TCV, it begs the question of why such the rapid change of mind and willingness to sell at a loss?

K12 recently reported organic revenue growth of 26%, driven by the increased acceptance of online learning and the addition of two new states. While the numbers themselves seem impressive, investors would have been better served by following the insiders that clearly had a better read on the direction of the ship.

2. Restoration Hardware

Restoration Hardware recently filed an amended S-1. While they didn't indicate the amount they are looking to raise, a prior S-1 indicated that Catterton, Tower Three Partners and Glenhill were seeking $150 million.

The S-1 filing has long-been anticipated, with rumors going back to late 2010 they were looking to raise $100-$300 million. The 3 funds fought off Sears Holdings (NASDAQ:SHLD) in 2008 and took Restoration private, valuing the equity at $267 million, which was later reduced to $179 million due to deteriorating market conditions.

While many predicted tough times for Restoration Hardware, they've smartly moved their offering upscale. Through turning their stores into Design Gallery formats and upgrading their catalog, among other moves, they've largely insulated themselves from the economic woes that have hit most retailers. They reported revenue up 27% in the six months ended July 30, 2011 and up over 23% in their fiscal year ending January 29, 2011.

Eddie Lampert (and all those not-so-lucky Sears shareholders) must be kicking himself for letting this one slip through his hands.

3. Roundy's

Supermarket chain operator Roundy's filed to raise $230 million. Milwaukee, Wisconsin based Roundy's operates Pick 'n Save, Copps, and Rainbow, among other brands in Wisconsin, Illinois and Minnesota. They plan to use all proceeds to reduce their $837 million of first and second lien debt. $150 million of that debt was used to fund a dividend to Roundy's current owner, Willis Stein.

The IPO seems to be Willis Stein's latest attempt to sell Roundy's after they reportedly hired Moelis & Co. and Credit Suisse to shop the chain back earlier this year. They were reportedly asking $1.2 billion.

Willis Stein, by the way, bought the chain for $750 million in 2002. A lot has changed since then: while competitors such as Kohl's Food Stores (NYSE:KSS) and Jewel have exited some of Roundy's markets, Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) have stepped up their game. Roundy's year-to-date revenue was up 2%, with their most recent quarter up 4%.

Before jumping into this one, investors must ask themselves if they'd like to be the proud buyer of a company that got raided by its former sponsor (in the form of the dividend), failed a sales process earlier this year, and is now competing head to head with the best in the business. If not, it's time to move on.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.